These Coins Cost More to Make than They’re Worth

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What’s in there? A half-eaten pack of gum, a few dollar notes, some crumbs from your morning bagel? Maybe even some coins?

Have you ever taken a second to consider how that money got there? Like…who makes the money that we all use to buy hot pockets or whatever?

The U.S. dollar banknotes come from the Bureau of Engraving and Printing, while all the coins in circulation are produced by the U.S. Mint. What’s strange is that two of the coins currently in circulation cost more to make than their actual face value.

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A quarter, worth 25¢, only costs 9¢ to make while a dime only costs about 4¢. On the other hand…a penny costs 1.66¢. The nickel, with a face value of 5¢, costs 8¢ to produce!

As you can see from the above graph, the nickel and the penny aren’t worth the metal they’re minted on. While the falling price of copper in recent times has given the U.S. mint a bit of a discount, it still hasn’t done enough for them to be able to turn a profit (so to speak).

It seems so obvious, but not many people think about the fact that someone had to pay to make the money that we use. Like economists say…there’s no such thing as a free lunch. While we use money without much (if any) thought to the costs that were incurred to produce it, those costs are still there. Very much there, actually. It hurts even more when you consider that it’s the taxpayer who pays for the coins to be minted. Yep. That means you.

When you add it all up…U.S. taxpayers are losing $100 milliona year from making these nickels and pennies. All due to the cost of the metals used in the minting of said coins. The falling price of copper and zinc in recent years does mean that we got a bit of a break, though. Because as recently as 2011, it cost 2.4 cents to make a penny. Ouch. Also…what?!?!

That means in 2011, if you paid someone in pennies, they could melt those coins down and sell it for more than twice what they received. Cool cool cool.

So why do we still keep them around?

After reading this…you might be moved to ask why we don’t just get rid of the penny and nickel. After all, inflation has rendered their buying power almost useless. Think about it, would you ever stop to pick up a penny that you spotted on the floor? Chances are you wouldn’t even notice it, let alone break your stride for it.

In fact, the only time most Americans use pennies and nickels is when it’s time to break open the piggy bank and head on down to the local Coinstar so you can get some crisp bills in exchange.

So why are they still around?

There a few reasons out there. Some say that people are attached to the coins, citing polls and quoting people who talk about the historical importance of the coins. Still, others consider the tribute to Lincoln (his face is on the penny, you guys!) as another reason…but given that he’s also on the $5 dollar bill we are of the opinion that Honest Abe has his hands in enough pies.

There’s likely a better reason.

The alternatives are not very appealing for some people. You could theoretically just alter how much copper and zinc is in each of the coins – up to a point where you start to “turn a profit” on producing them. If a penny is currently made of 80% copper, then maybe if we diluted that down to 50% we could trim down on production costs sufficiently.

That’s an easy solution on the production side. The problem is that there’s a big lobby, made up of metal alloy industries and vending machine corporations, who oppose it. Buying less metal means less money for the alloy industries. The biggest pro-penny lobby group is called Americans for Common Cents and is backed by a major zinc producer. How convenient.

Meanwhile, changing the weight of the coins would necessitate the upgrading of all the vending machines in the country – a costly endeavor estimated to run in the billions of dollars. That’s a cost that the vending machine industry would obviously not like to have to endure…so they’ll fight. Hard.

Another option is to just get rid of it entirely. That’s what other countries, like Canada and Australia, have done and makes a lot of sense. Instead of using pennies, the price of a purchase is either rounded up or down. $20.03 for a pair of gloves becomes $20 and $20.08 becomes $20.10. On some purchases, you’ll pay a few extra pennies and on others you’ll make a few pennies. Unlike your college roommate who “never carries cash!”, this one evens out in the long run.

There are those who believe that eliminating the penny and/or nickel would cause prices to rise. Merchants will pinch a penny here and a penny there – making everything slightly more expensive to buy. In a poll conducted in 2012, more than two-thirds of respondents were under the impression that a rounding system like the one implemented in Canada would cause businesses to raise prices.

Like it or not, it’s the taxpayer’s perception of what might happen as well as the strength of certain lobbying agents that is keeping the penny in circulation. So while the penny was probably useful when it was first introduced in 1864 – back when a dozen eggs cost less than 30c – now it’s more useful as a paperweight (if you have enough of them).

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All for dropping the penny and nickle. Especially if The State of Michigan would drop their 6% sales tax. Which happens to be one nickle, and one penny. Or would you advise raising sales taxes on consumers?

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